Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations

Caution Regarding Forward-Looking Statements:

Statements in this document that are not historical facts, including statements that (i) are in the future tense; (ii) include the words "expects," "plans," "targets," "estimates," "believes," "anticipates," or similar words that reference Snap-on Incorporated ("Snap-on" or "the company") or its management;
(iii) are specifically identified as forward-looking; or (iv) describe Snap-on's or management's future outlook, plans, estimates, objectives or goals, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Snap-on cautions the reader that any forward-looking statements included in this document that are based upon assumptions and estimates were developed by management in good faith and are subject to risks, uncertainties or other factors that could cause (and in some cases have caused) actual results to differ materially from those described in any such statement. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results or regarded as a representation by the company or its management that the projected results will be achieved. For those forward-looking statements, Snap-on cautions the reader that numerous important factors, such as those listed below, as well as those factors discussed in its Annual Report on Form 10-K for the fiscal year ended December 29, 2007, which are incorporated herein by reference, could affect the company's actual results and could cause its actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Snap-on.

These risks and uncertainties include, without limitation, uncertainties related to estimates, statements, assumptions and projections generally, and the timing and progress with which Snap-on can attain efficiencies and savings from its Rapid Continuous Improvement ("RCI") and other cost reduction initiatives, including its ability to implement reductions in workforce, achieve improvements in the company's manufacturing footprint and greater efficiencies in its supply chain, and enhance machine maintenance, plant productivity and manufacturing line set-up and change-over practices, any or all of which could result in production inefficiencies, higher costs and lost revenues. These risks also include uncertainties related to Snap-on's capability to implement future strategies with respect to its existing businesses, its ability to refine its brand and franchise strategies, retain and attract franchisees, further enhance service and value to franchisees and thereby enhance their sales and profitability, introduce successful new products, successfully integrate acquisitions, as well as its ability to withstand disruption arising from natural disasters, planned facility closures or other labor interruptions, litigation challenges and external negative factors including significant changes in the current competitive environment, inflation, disruptions and instability in the credit and financial markets, changes in interest rates and other monetary and market fluctuations; and the impact of legal proceedings, energy and raw material supply and pricing, including steel and gasoline, the amount, rate and growth of Snap-on's general and administrative expenses, including health care and postretirement costs, the impacts of non-strategic business and/or product line rationalizations, and terrorist disruptions on business. Interim results of operations are not necessarily indicative of the results to be expected for the full fiscal year. Snap-on disclaims any responsibility to update any forward-looking statement provided in this document, except as required by law.

In addition, investors should be aware that generally accepted accounting principles in the United States of America ("U.S. GAAP") prescribe when a company should reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results, therefore, may appear to be volatile in certain accounting periods.

RESULTS OF OPERATIONS



Results of operations for the three month periods ended September 27, 2008, and
September 29, 2007, are as follows:



                                                             Three Months Ended
(Amounts in millions)         September 27, 2008              September 29, 2007                   Change
Net sales                 $         697.8     100.0 %     $         680.7     100.0 %     $     17.1       2.5 %
Cost of goods sold                 (385.6 )   -55.3 %              (379.8 )   -55.8 %           (5.8 )    -1.5 %
Gross profit                        312.2      44.7 %               300.9      44.2 %           11.3       3.8 %

Financial services
revenue                              18.0     100.0 %                15.8     100.0 %            2.2      13.9 %
Financial services
expenses                            (13.2 )   -73.3 %               (10.2 )   -64.6 %           (3.0 )   -29.4 %
Operating income from
financial services                    4.8      26.7 %                 5.6      35.4 %           (0.8 )   -14.3 %

Operating expenses                 (230.6 )   -33.0 %              (234.1 )   -34.4 %            3.5       1.5 %
Operating earnings                   86.4      12.1 %                72.4      10.4 %           14.0      19.3 %

Interest expense                     (6.8 )    -0.9 %               (11.6 )    -1.7 %            4.8      41.4 %
Other income (expense)
- net                                 1.0       0.1 %                 2.6       0.4 %           (1.6 )   -61.5 %
Earnings before income
taxes, equity earnings
and minority interests               80.6      11.3 %                63.4       9.1 %           17.2      27.1 %
Income tax expense                  (26.8 )    -3.8 %               (21.6 )    -3.1 %           (5.2 )   -24.1 %
Earnings before equity
earnings and minority
interests                            53.8       7.5 %                41.8       6.0 %           12.0      28.7 %
Equity earnings, net
of tax and minority
interests                             0.8       0.1 %                (0.7 )    -0.1 %            1.5        NM
Net earnings              $          54.6       7.6 %     $          41.1       5.9 %     $     13.5      32.8 %

NM: Not meaningful

Percentage Disclosure: Cost of goods sold, Gross profit and Operating expenses percentages are calculated as a percentage of Net sales. Financial services expenses and Operating income from financial services percentages are calculated as a percentage of Financial services revenue. All other income statement line item percentages are calculated as a percentage of the sum of Net sales and Financial services revenue.

Net sales in the third quarter of 2008 of $697.8 million increased $17.1 million, or 2.5%, from 2007 levels, including $12.1 million from currency translation.

Sales in the Commercial & Industrial Group of $338.1 million increased $10.2 million, or 3.1%. Excluding $12.4 million of currency translation, Commercial & Industrial Group sales declined $2.2 million year over year as continued growth in emerging markets, higher sales of power tools, increased sales to industrial customers, and continued strong sales of imaging aligner units, were more than offset by lower sales of professional tools in Europe and by sales declines in other wheel service equipement worldwide. Sales in the Snap-on Tools Group of $269.5 million increased $7.5 million, or 2.9%, primarily due to higher sales in the company's international franchise operations; currency translation contributed $0.4 million of the sales increase. In the Diagnostics & Information Group, sales of $155.1 million were up $3.1 million from 2007 levels as higher Original Equipment Manufacturer ("OEM") program sales, increased sales of diagnostics products in Europe, and higher sales of Mitchell1™ information products were partially offset by lower sales of diagnostics products in North America and by lower sales at Snap-on Business Solutions, including expected lower sales from the planned exit of certain non-core product lines.

Gross profit in the third quarter of 2008 was $312.2 million, as compared to $300.9 million in 2007. The $11.3 million increase in gross profit primarily includes contributions from higher pricing, $5.2 million of savings from ongoing efficiency, productivity and cost reduction ("Rapid Continuous Improvement" or "RCI") initiatives, $4.0 million of currency translation, and $2.2 million of lower restructuring costs. These improvements were partially offset by a shift in product mix that included lower sales of higher-margin products in the U.S. franchise operations and increased production, material and freight costs. Gross profit margin of 44.7% in 2008 was up 50 basis points (100 basis points equals 1.0 percent) from 44.2% in 2007.

Operating expenses in the third quarter of 2008 were $230.6 million, as compared to $234.1 million in 2007. The $3.5 million reduction in operating expenses includes $6.4 million of benefits from RCI initiatives and $2.6 million of lower franchisee termination costs, primarily as a result of continued favorable trend rates. These improvements were partially offset by $3.6 million of unfavorable currency translation and $1.8 million of higher restructuring costs. As a percentage of net sales, operating expenses improved 140 basis points to 33.0% in the third quarter of 2008, as compared to 34.4% in 2007.

Operating income from Financial Services was $4.8 million on revenue of $18.0 million in the third quarter of 2008, as compared with $5.6 million of operating income on revenue of $15.8 million in 2007. Contributions from higher revenues in 2008, primarily as a result of lower market discount rates, were more than offset by higher year-over-year operating expenses, including $1.4 million of one-time, project-related costs.

Consolidated operating earnings in the third quarter of 2008 were $86.4 million, an increase of $14.0 million, or 19.3%, from the $72.4 million achieved in the third quarter of 2007. Currency translation contributed $0.3 million of the $14.0 million increase in year-over-year operating earnings.

Interest expense of $6.8 million in the third quarter of 2008 was down $4.8 million from the prior year primarily due to declining interest rates and lower average debt levels in the quarter.

Other income (expense) - net was income of $1.0 million in the third quarter of 2008 as compared to income of $2.6 million in 2007. Other income (expense) - net primarily includes interest income and hedging and currency exchange rate transaction gains and losses. See Note 17 to the Condensed Consolidated Financial Statements for further information.

Snap-on's effective income tax rate on earnings before equity earnings and minority interests was 33.3% in the third quarter of 2008 and 34.1% in the third quarter of 2007. Snap-on anticipates that its full year effective income tax rate on earnings before equity earnings and minority interests will approximate 33.3% in 2008. See Note 7 to the Condensed Consolidated Financial Statements for information on income taxes.

On March 5, 2008, Snap-on acquired a 60% interest in Zhejiang Wanda Tools Co., Ltd. ("Wanda Snap-on"), a tool manufacturer in China, for a preliminary cash purchase price of $14.7 million, including an estimated $1.1 million of transaction costs. The preliminary purchase price, which is subject to the finalization of working capital and certain other adjustments that are expected to be finalized in the fourth quarter of 2008, increased from $14.7 million to $15.1 million (or $13.8 million, net of cash acquired) in the second quarter of 2008; no purchase price adjustments were recorded in the third quarter of 2008.

The acquisition of Wanda Snap-on is part of the company's ongoing strategic initiatives to further expand its manufacturing presence in emerging growth markets and lower-cost regions. For segment reporting purposes, the results of operations and assets of Wanda Snap-on, which have been included in Snap-on's condensed consolidated financial statements since the date of acquisition, are included in the Commercial & Industrial Group. As of September 27, 2008, the net sales and operating earnings impact of the acquisition were not material to Snap-on's third quarter or year-to-date 2008 condensed consolidated financial statements.

Net earnings in the third quarter of 2008 were $54.6 million, or $0.94 per diluted share. This compares with net earnings of $41.1 million, or $0.70 per diluted share, in the third quarter of 2007.

Results of operations for the nine month periods ended September 27, 2008, and September 29, 2007, are as follows:

                                                            Nine Months Ended
(Amounts in millions)          September 27, 2008            September 29, 2007                Change
Net sales                   $   2,185.5       100.0 %     $   2,098.3       100.0 %      $ 87.2        4.2 %
Cost of goods sold             (1,200.9 )     -54.9 %        (1,165.1 )     -55.5 %       (35.8 )     -3.1 %
Gross profit                      984.6        45.1 %           933.2        44.5 %        51.4        5.5 %

Financial services
revenue                            61.7       100.0 %            44.0       100.0 %        17.7       40.2 %
Financial services
expenses                          (33.3 )     -54.0 %           (29.6 )     -67.3 %        (3.7 )    -12.5 %
Operating income from
financial services                 28.4        46.0 %            14.4        32.7 %        14.0       97.2 %

Operating expenses               (721.7 )     -33.0 %          (719.1 )     -34.3 %        (2.6 )     -0.4 %
Operating earnings                291.3        13.0 %           228.5        10.7 %        62.8       27.5 %

Interest expense                  (25.1 )      -1.1 %           (34.6 )      -1.6 %         9.5       27.5 %
Other income (expense)
- net                               3.3         0.1 %             5.9         0.3 %        (2.6 )    -44.1 %
Earnings before income
taxes, equity earnings
and minority interests            269.5        12.0 %           199.8         9.4 %        69.7       34.9 %
Income tax expense                (89.6 )      -4.0 %           (66.2 )      -3.1 %       (23.4 )    -35.3 %
Earnings before equity
earnings and minority
interests                         179.9         8.0 %           133.6         6.3 %        46.3       34.7 %
Equity earnings, net of
tax and minority
interests                          (1.8 )      -0.1 %            (1.7 )      -0.1 %        (0.1 )     -5.9 %
Net earnings from
continuing operations             178.1         7.9 %           131.9         6.2 %        46.2       35.0 %
Discontinued
operations, net of tax              -            -               (8.0 )      -0.4 %         8.0      100.0 %
Net earnings                $     178.1         7.9 %     $     123.9         5.8 %      $ 54.2       43.7 %

Percentage Disclosure: Cost of goods sold, Gross profit and Operating expenses percentages are calculated as a percentage of Net sales. Financial services expenses and Operating income from financial services percentages are calculated as a percentage of Financial services revenue. All other income statement line item percentages are calculated as a percentage of the sum of Net sales and Financial services revenue.

Net sales in the first nine months of 2008 of $2,185.5 million increased $87.2 million, or 4.2%, from 2007 levels, including $77.7 million from currency translation.

Sales in the Commercial & Industrial Group of $1,082.5 million increased $101.2 million, or 10.3%, primarily due to $61.4 million of currency translation and $39.8 million of higher sales. The $39.8 million sales increase primarily reflects higher sales of tools, kits and tool storage products to industrial customers, increased sales of power tools and imaging alignment systems, and continued strong sales growth in emerging markets. Sales in the Snap-on Tools Group of $851.6 million were up $17.1 million, or 2.0%, as the impacts of higher sales in the company's international franchise operations and $13.4 million of currency translation were partially offset by lower U.S. franchise sales, primarily as a result of a more challenging economic environment for sales of higher-priced products. In the Diagnostics & Information Group, sales of $474.9 million were down $6.2 million, or 1.3%, as higher sales of diagnostics and Mitchell1 information products and $5.5 million of currency translation were more than offset by $35.3 million of lower OEM program sales and by lower sales at Snap-on Business Solutions, including expected lower sales from the planned exit of certain non-core product lines. The $35.3 million reduction in year-over-year OEM sales is primarily a consequence of the

comparison against the 2007 rollout of a major essential tool program in North America and the impact of the wind down of a facilitation program in Europe.

Gross profit in the first nine months of 2008 was $984.6 million, as compared to $933.2 million in 2007. The $51.4 million gross profit improvement includes $26.5 million of currency translation, contributions from higher sales and pricing, $18.5 million of savings from RCI initiatives, and $11.5 million of lower restructuring costs. These improvements were partially offset by the mix impact of lower sales of higher-margin products in the U.S. franchise operations and $15.1 million of increased production, material and freight costs. As a result of these factors, gross profit margin was 45.1% in 2008, up 60 basis points from 44.5% in 2007.

Operating expenses in the first nine months of 2008 were $721.7 million, as compared to $719.1 million in 2007. The $2.6 million increase in operating expenses primarily includes $21.2 million of unfavorable currency translation, $3.0 million of higher restructuring costs, and increased spending to further expand the company's presence in emerging growth markets and lower-cost regions. These increases were largely offset by $16.2 million of benefits from RCI initiatives and $11.1 million of lower franchisee termination costs, primarily as a result of continued favorable trend rates. As a percentage of net sales, operating expenses improved 130 basis points to 33.0% in the first nine months of 2008, as compared to 34.3% in 2007.

Operating income from Financial Services was $28.4 million on revenue of $61.7 million in the first nine months of 2008, as compared with $14.4 million of operating income on revenue of $44.0 million in 2007. Contributions from higher revenues in 2008, primarily as a result of lower market discount rates, were partially offset by higher year-over-year operating expenses, including $1.4 million of one-time, project-related costs.

Consolidated operating earnings in the first nine months of 2008 were $291.3 million, an increase of $62.8 million, or 27.5%, from the $228.5 million achieved in the first nine months of 2007. Currency translation contributed $5.6 million of the $62.8 million increase in year-over-year operating earnings.

Interest expense of $25.1 million in the first nine months of 2008 was down $9.5 million from the prior year primarily due to declining interest rates and lower average debt levels.

Other income (expense) - net was income of $3.3 million in the first nine months of 2008, as compared to income of $5.9 million in 2007. Other income (expense)
- net primarily includes interest income and hedging and currency exchange rate transaction gains and losses. See Note 17 to the Condensed Consolidated Financial Statements for further information.

Snap-on's effective income tax rate on earnings before equity earnings and minority interests was 33.2% in the first nine months of 2008 and 33.1% in the first nine months of 2007. Snap-on anticipates that its full year effective income tax rate on earnings before equity earnings and minority interests will approximate 33.3% in 2008. See Note 7 to the Condensed Consolidated Financial Statements for information on income taxes.

On June 29, 2007, Snap-on sold its Sun Electric Systems ("SES") business based in the Netherlands for a nominal cash purchase price. The sale of the SES business is reflected in the accompanying Condensed Consolidated Statements of Earnings as "Discontinued operations, net of tax." Snap-on recorded an after-tax loss of $8.0 million, or $0.14 per diluted share, in its 2007 results of operations related to the sale and results of operations of SES. For segment reporting purposes, the results of operations of SES were previously included in the Diagnostics & Information Group.

Net earnings and net earnings from continuing operations in the first nine months of 2008 were $178.1 million, or $3.06 per diluted share. This compares with net earnings for the first nine months of 2007 of $123.9 million, or $2.11 per diluted share, and net earnings from continuing operations of $131.9 million, or $2.25 per diluted share.

Exit and Disposal Activities

Snap-on recorded costs of $1.4 million and $8.0 million for exit and disposal activities in the three and nine month periods ended September 27, 2008, respectively, as compared to $1.8 million and $16.5 million of such costs in the three and nine month periods ended September 29, 2007, respectively. Snap-on anticipates full-year 2008 restructuring costs to be in a range of $12 million to $14 million, as compared to the $26.3 million incurred in full-year 2007.

Snap-on is continually evaluating the long-term strategic fit of its various businesses and/or product lines. Additional exit and/or disposal charges may be incurred in the event the company decides to exit certain non-strategic businesses and/or product lines that no longer fit with the company's core strategies. See Note 6 to the Condensed Consolidated Financial Statements for further information on Snap-on's exit and disposal activities.

Segment Results

Snap-on's business segments are based on the organization structure used by management for making operating and investment decisions and for assessing performance. Snap-on's reportable business segments include: (i) the Commercial & Industrial Group; (ii) the Snap-on Tools Group; (iii) the Diagnostics & Information Group; and (iv) Financial Services. The Commercial & Industrial Group consists of the business operations providing tools and equipment products and equipment repair services to a broad range of industrial and commercial customers worldwide through direct, distributor and other non-franchise distribution channels. The Snap-on Tools Group consists of the business operations serving the worldwide franchise van channel. The Diagnostics & Information Group consists of the business operations providing diagnostics equipment, vehicle service information, business management systems, electronic parts catalogs, and other solutions for vehicle service to customers in the worldwide vehicle service and repair marketplace. Financial Services consists of the business operations of Snap-on Credit LLC ("SOC"), a consolidated, 50%-owned joint venture between Snap-on and The CIT Group, Inc. ("CIT"), and Snap-on's wholly owned finance subsidiaries in those international markets where Snap-on has franchise operations.

Snap-on evaluates the performance of its operating segments based on segment revenues and operating earnings. For the Commercial & Industrial, Snap-on Tools, and Diagnostics & Information Groups, segment net sales include both external and intersegment net sales. Snap-on accounts for intersegment sales and transfers based primarily on standard costs with reasonable mark-ups established between the segments. Identifiable assets by segment are those assets used in the respective reportable segment's operations. Corporate assets consist of cash and cash equivalents, deferred income taxes, pension assets and certain other assets. Intersegment amounts are eliminated to arrive at consolidated financial results.

Commercial & Industrial Group



                                                     Three Months Ended
(Amounts in millions)          September 27, 2008        September 29, 2007          Change
External net sales           $    301.7       89.2 %   $    295.4       90.1 %   $ 6.3    2.1 %
Intersegment net sales             36.4       10.8 %         32.5        9.9 %     3.9   12.0 %
Segment net sales                 338.1      100.0 %        327.9      100.0 %    10.2    3.1 %
Cost of goods sold               (211.0 )    -62.4 %       (210.9 )    -64.3 %    (0.1 )    -
Gross profit                      127.1       37.6 %        117.0       35.7 %    10.1    8.6 %

Segment net sales of $338.1 million in the third quarter of 2008 increased $10.2 million, or 3.1%, from 2007 levels. Excluding $12.4 million of currency translation, sales declined $2.2 million year over year as continued growth in emerging markets, contributions from increased sales of power tools, higher sales of tools, kits and tool storage products to industrial customers, and continued strong sales of imaging aligner units, were more than offset by lower sales of professional tools in Europe and by sales declines in other wheel service equipment worldwide.

Segment gross profit of $127.1 million in the third quarter of 2008 was up $10.1 million, or 8.6%, over 2007 levels. The $10.1 million gross profit improvement includes $4.0 million of currency translation, $3.0 million of savings from RCI and restructuring initiatives, and $1.8 million of lower restructuring costs. Gross profit contributions from higher pricing, sales growth in emerging markets, increased sales of power tools, and higher sales to industrial customers, were partially offset by the impact of lower sales of professional tools and general wheel service equipment, primarily in Europe, and increased commodity costs. As a percentage of net sales, gross profit of 37.6% improved 190 basis points over 35.7% in 2007. Operating expenses of $86.4 million were up $2.1 million from 2007 levels primarily due to $3.3 million of unfavorable . . .